Financial indications for the municipal bond insurance industry pointed dramatically higher in the first half of 1992, with Municipal Bond Investors Assurance Corp. leading the way with a 43% increase in profits.
The three biggest insurers all showed significant jumps in statutory net income on the strength of record volume and refundings, but results for the two players, Financial Security Assurance and Capital Guaranty Insurance Co., were slightly.
MBIA, the largest of the five financial guarantors, saw statutory net income surge to $92.4 million in the first half of 1992, from $64.5 million in the same period last year. At 43%, that was the biggest percentage increase in the industry.
The year-to-year comparison for MBIA is slightly skewed because 1991's figures include a $12.6 million addition to loss reserves related to the failure of Executive Life Insurance Co.
Second-ranked Financial Guaranty Insurance Co. saw net income jump a strong 35% in the first six months of 1992, to $54.7 million from $40.6 million.
Ann C. Stern, president and chief executive officer of FGIC, said the company is pleased with its first-half results, but she warned that since most of the gains have been fueled by unusually low interest rates, future earnings will probably be off in comparison.
"Toward the end of the year and into 1993 with an anticipated decrease in refunding volume, we do not expect earnings will experience the remarkable growth seen this year," Ms. Stern said.
AMBAC Indemnity Corp.'s net income moved up 31% for the half, to $63.9 million from $48.7 million last year. Phillip B. Lassiter, the company's chairman and chief executive officer, said the strong showing is "testimony to AMBAC's smooth transition to being 100% publicly held." AMBAC made its first public stock offering in mid-1991.
Despite gains at the big three, FSA and Capital Guaranty have not joined in so far on the 1992 profit train. Capital Guaranty's statutory net income slipped to $6.5 million during the first six months of 1992 from $6.7 million in the same period last year. FSA's profits dipped nearly 45%, to $19.4 million from $20.4 million last year.
But a spokeswoman for FSA said if not for a $13 million loss reserve taken on commercial real estate transactions earlier this year, FSA would have seen statutory net income rise 44%.
Low interest rates have spurred refundings throughout the municipal market, which act as a boon to insurer's bottom lines by allowing them to book unearned premiums. In the first half of 1992, refundings accounted for $46.5 billion of the total $108.9 billion of bonds sold, compared to $19.1 billion sold between January and June of 1991, according to Securities Data Co.
Insurers enhanced $39.6 billion of the total volume for the half.
Despite mixed results on profits, every company shared in the industry's increased demand for insurance. Net premiums written, which measures the amount of new business retained after ceding reinsurance premiums, scored big gains for all five primary insurers.
FSA's net premiums written soared a whopping 230% in the first half, to $51.9 million from $15.7 million. But a spokeswoman for the firm said the figure is misleading because it reflects a diversification into municipals last year. Although premiums for municipal transactions are booked on an accrual basis, they are paid immediately, while premiums for asset-backed coverage are paid over the life of the policy. The difference results in a bloated net premiums written category for the firm, the spokeswoman explained.
MBIA showed the second highest gain in the premiums written category, increasing 76% to $166.1 million from $94.3 million. FGIC was close behind, with a $76% jump to $106 million from $60.2 million, and Capital Guaranty scored a 70% increase, moving to $14.3 million from $8.4 million.
AMBAC's net premiums increased 50% to 82.7% million from $55 million.
All five companies also showed steady growth in policyholders' reserves, a category that reflects the total surplus, contingency reserve, capital, unearned premiums, and loss reserve.
MBIA is the leader of the pack in this category as well, with $2.25 billion in policyholders' reserves as of June 30. That compares with $2.02 billion on Dec. 31, 1991. FGIC's reserve rose to $1.41 billion from $1.3 billion, AMBAC moved to $1.39 billion from $1.31 billion, FSA increased $678.9 million from $628.7 million, and Capital Guaranty rose to $241.8 million from $198.12 million.